Every year the US government assigns contracts to private businesses throughout the United States

They are available for both small and large businesses.

Government Contract Financing

Government contract financing is a great way for companies to retain the proper cash flow when doing business with the Federal government. It can be a great accomplishment to land a government contract, but it can also be challenging to complete assigned jobs and keep your cash flow positive. Covering operational costs of a particular project and continuing to fund other aspects of your company can be difficult.

Companies must do everything they can to prevent cash flow issues throughout the process of completing a Government contract. Not having enough cash to pay personnel and cover expenses is not acceptable. One way for a company to solve this issue is to sell their government contract invoices to a factoring company.

Once a company has completed a government contract project, it could take 1-2 months or more before they receive payment. In this waiting period, the business will be out of the cash that was used for operational expenses during the job. Without income from the government job, the business could be cash poor. For larger companies it is easier for them to absorb but it won't cause them to be unable to fulfill other commitments or jobs.

The same is not true for smaller businesses. Waiting 1-2 months to get paid for an expensive job, could essentially shut down their operations, making it very challenging to generate any other additional income. Government contract factoring gives small businesses a fantastic method to get the cash needed to effectively run their business.

A company sells their accounts receivables to a factor. The factor, or the company that buys the government contract invoice, will then be responsible for collecting the money. The invoice is always sold at a discounted rate. For example, a seller may require that the factor funds them 90% of the amount billed on invoice. Once the factor is able to collect the entire balance of what is owed by the government, they will give the remaining, in this case, 10% back to the seller. The seller will pay a fee, typically a few points, to cover the factor’s services.

Selling the invoice from a government contract job in order to get cash needed to operate can be a great way to successfully complete the job. Most small businesses can't wait 30-60 days to receive payment and selling the invoice to a factoring company can be the perfect solution.